Social networking sites, such as Twitter, Facebook and MySpace, present a great opportunity for registered representatives and investment advisor representatives to connect with clients or potential clients. However, use of these sites also puts the firm and its reps at risk of violating federal or state rules and regulations, as well as firm policies. Therefore, these sites should be used with caution. Firms must be aware of the compliance requirements and potential liabilities associated with the use of these new technologies.
FINRA breaks Internet activity into five main groups for purposes of regulatory requirements, each of which applies to the use of social networking sites:
- publicly available web sites
- password-protected web sites
- emails or instant messages sent to 25 or more prospective retail customers
- an email or instant message sent to a single customer
- chat room discussions
Publicly available web sites, including blogs, are considered advertisements. Most social networking sites allow members to set up profiles and blogs that can be viewed by the public with little or no control over who views it. If your reps are utilizing this type of site for work-related matters, the same advertising rules that are imposed on the firm’s public website apply.
Password-protected web sites are considered sales literature under applicable rules. Therefore, if the rep’s profile is restricted to just the rep’s specific contacts, communications that are business related through this profile are also considered sales literature. Advertisements and sales literature must be approved by a principal in accordance with firm policies, and advertisements may require submission to FINRA Advertising for review, depending on the content. In addition, copies of all advertisements must be maintained as part of the firm’s records for three years from last use.
Emails and instant messages are common features of most of these sites as well. An email or instant message sent to 25 or more prospective retail customers is considered sales literature. An email or instant message is considered correspondence if it is sent to a single customer (prospective or existing), an unlimited number of existing retail customers, or less than 25 prospective retail customers within a 30-day period. As part of FINRA record-keeping requirements, all emails and instant messages that are business-related must be captured and reviewed by the designated principal in accordance with the firm’s policies. In addition, they must be maintained as part of the firm’s records for three years.
Many social networking sites offer the use of chat rooms and these types of discussions are considered public appearances. Though there are less strict pre-approval requirements for using chat rooms, if a rep’s chat room conversations are industry related, the rep must follow the same requirements that he or she would if speaking in person in front of a group of investors. The conversations must be monitored and the rep needs to have a firm understanding of the rules for communications with the public. Firms that allow reps to participate in chat rooms need to ensure they have robust policies and procedures to allow principal review of such discussions.
Reps may not think of these new technologies as traditional business communication, especially if they are chatting with friends or simply posting their profile on Facebook. However, if any element can be considered industry-related, it needs to be treated as an official work product.
Social networking sites can be very difficult to supervise and the best solution may be to block access to the sites from your firm’s network, as well as establish policies that prohibit use of them for business purposes. If your firm decides to allow reps to use social networking sites, you need to ensure that you have adequate policies and procedures to monitor their use, systems in place to capture messages sent or received through these sites, and that you review their use carefully to make sure that even casual conversation or postings comply with FINRA and SEC regulations for advertisements, correspondence and sales literature, as well as your firm’s policies.
If you have any questions concerning FINRA and SEC regulations or your firm’s policies on Internet activities, please contact your Compliance Partners account manager at 603-434-3594.
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